How to save for retirement when you can’t afford it

It’s never too soon save for your retirement, yet no matter when you start, you may have a frustrating problem on your hands: You can’t afford to save any money for it.
For the 20-to-30-something professional, student loan debt that may take precedence over your retirement. (And that’s not counting plans to buy a first house or start a family.) Older adults may have other financial obligations that have put retirement saving on the back burner. And for anyone of any age, the cost of living and your revolving expenses can thwart your savings plans, making the prospect of retiring on time next to an impossibility.
The popular savings target of $1 million that’s needed to retire on comfortably can seem completely unreachable for anyone living hand to mouth; a recent study showed that to reach this goal, you’d need to save 22 percent of your salary throughout your entire working career. Most Americans don’t even have $1,000 in savings to their names, much less for retirement.

But even if you’re broke, there’s still a chance to start a retirement fund. Here are some small changes you can make to start saving more money:

Use a calculator to estimate how much you’ll need

There’s no point in overextending your savings goal if you can comfortably retire on less. That could mean spreading yourself and your finances too thin when a more relaxed savings plan is all that’s needed.
Try using a retirement calculator to help you estimate the age you want to retire at, and how much money you may need to save based on your lifestyle and financial needs. The best thing about retirement calculators is that you can adjust the figures as you go, since spending and saving habits can change over time. We recommend getting a head start with some of these retirement calculators.

Save two entire paychecks a year

There’s a helpful student loan hack where paying your debt twice a month instead of once amounts to an entire extra payment per year.
You can employ a similar approach to saving for retirement if your funds are limited. If you’re paid every other week, you’ll receive 26 paychecks per year over a 52-week period. That means two months out of the year you’ll receive a third paycheck that you can save towards retirement. (Your months could vary, so check your payroll schedule to see when those pay periods will fall.)
Like a tax refund or gift money, look at those paychecks strictly as extra money meant for retirement. The good part is that those extra payments are guaranteed, so you can look forward to them, plan them as deposits into your savings, and resist the temptation to spend them when they’ve already been earmarked as retirement funds.

Rethink your budget

If you live paycheck to paycheck, socking away those extra paychecks may seem misguided when they could be used for other expenses. But not if your budget is in good shape. Taking a holistic look at your entire budget, and rethinking it entirely, if needed, will find you ways to free up more money for retirement without sacrificing other expenses.
Begin by examining your income and expenses. Are there ways to trim some fat off the latter to reduce your spending and divert the freed-up funds for retirement? They may be simple lifestyle changes, like buying generic at the grocery store, dialing back the Starbucks, or canceling cable.
You might make bigger changes to your budget depending on your circumstances, like passing on an overseas vacation and travelling locally the next few summers, or selling your car if you live in an area with abundant public transportation. Your gas money will be replaced with train or bus fare, true -- but the money you save on car insurance can turn into retirement savings.
Rearranging the way you budget to "pay yourself first" is yet another avenue to ensure that the very first expense you pay is the money you set aside into a retirement savings, every paycheck, without fail.

Make money on the side

Finding ways to boost income can offset your expenses, and if you look for ways to raise your earnings and reduce your spending in tandem, you’ll clear up even more for retirement saving.
The most practical option is taking on a side gig or part-time job -- even if it’s for a few hours or one day a week -- and devote your income only to your retirement nest egg or account. It could be anything from driving for Uber or Lyft, Airbnbing your apartment, getting paid for clinical research trials, or turning a hobby (like making arts and crafts) into a nice extra income.
Of course, don’t discount taking on a second job a few times a week, if it fits into your schedule; it may be the simplest route to earning more money you can pocket for retirement.

Take advantage of IRS credits

If your employer offers a company-sponsored retirement plan, like 401(k), signing up for it and depositing even the smallest portion of your pay into your account gives you at least some leverage on the savings front.
What you should be aiming to take advantage of through your account is cashing in on the Saver’s Credit, a tax credit for contributions made to retirement savings up to a certain amount. Just like how your employer may match your 401(k) contributions, the IRS will do the same if you contribute up to $2,000 a year into the appropriate retirement savings plan, matching either 50, 20 or 10 percent depending on your adjusted gross income.
The good news is that the lower your income, the higher the match, a major perk if you’re not earning much money right now and can’t afford to save for retirement. According to the IRS, if your adjusted gross income is no more than $27,750, you’ll get the 50 percent match, 20 percent for income between $27,750 and $30,000.
A minimum $2,000 contribution would result in a credit of $1,000 or $400, respectively. Put the money back into your retirement account or in another savings designed for it.

Try P2P lending to raise retirement savings

Peer-to-peer services have become popular alternatives for college graduates to find funding to pay down their student loan debt. They can also be a valuable source to save for retirement.
Normally, an investor on a P2P site lends money to borrowers to make some cash on the interest -- but if you’re struggling to save, your approach to make money would be a bit different. If you meet the income requirements, you may qualify to join a lending circle, essentially a big group loan where several members pool their money together, and each member has a turn at some of the funds to use for an expense. When it’s your chance to get funded, using the money for retirement may be one option you’d consider.
Keep in mind there are drawbacks that come with going the P2P route, like being charged high fees. You may also need to meet credit score (as well as income) requirements, and you may be limited in the funding available to you depending on how much money is raised in the circle.
Unless you’re planning on working until you die, retirement will be a part of your life at some point, but a savings plan won’t be unless you put the work into making it happen. Keep working hard in your career with the goal of earning more money and making a retirement savings plan a bigger priority.
In the meantime, if your current income prohibits you from saving regularly, the above approaches may still help you get a head start on your retirement goals.

As a personal finance journalist, Paul specializes in financial literacy, loans, credit scoring and the art of negotiation. He's covered some of the nation's most inspiring financial success stories for national publications including CNN, and US News & World Report and has a passion for helping Americans overcome their debt.

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